Being a Non-Profit Hospital CEO Means Never Having to Say You Are Sorry

When my arm was twisted heartily to see the movie "Love Story" a very long time ago, I could never understand why so many audience members sighed upon hearing that immortal line, "love means never having to say you're sorry."  I could not understand it then, and still cannot.

However, it seems that for reasons that are not any more clear, being the CEO of a not-for-profit hospital or hospital system also means never having to say you are sorry, as shown in some recent stories from the media.

Not Sorry for Leaving

Originally published in the Fargo (ND) InForum:

The merger 1½ years ago of Sanford Health and MeritCare created a new entity that doubled in size and covers a service area of more than 130,000 square miles.

But the unified health care giant needed only one top executive, and the departing chief administrator received a $1 million contract buyout, according to documents obtained by The Forum.

Dr. Roger Gilbertson, a neuroradiologist who had served as MeritCare’s top executive since its founding 17 years earlier, received a 'separation payment' provided by his contract of $1,000,920, according to a report Sanford filed with the Internal Revenue Service that recently became available.

Not only did Dr Gilbertson not have to say he was sorry for leaving, he collected what amounted to a million dollar plus bonus just for going out the door.

Not Sorry for Leaving Amidst Financial Losses

A long story in the Atlanta Journal Constitution discussed compensation for a number of Atlanta area hospital and hospital system CEOs.  For example,

Edward Bonn of Southern Regional Health System, which operates Southern Regional Medical Center and two affiliated facilities, made $2,610,175 in fiscal 2009. Bonn left the system that year and received his pay of $421,822 plus $2.2 million from a retirement plan. Hospital CEOs commonly receive extra pay from retirement plans when they leave.

Bonn did not receive a bonus because the hospital system lost $12 million that year, the hospital said.

Mr Bonn apparently did not need to say he was sorry for collecting over $2 million when that amount was equal to about one-sixth of his system's yearly loss.

Not Sorry for Financial Losses Plus a "Culture of Entitlement"

This story was in the Peterborough (NH) Examiner:

Former Peterborough Regional Health Centre CEO Paul Darby was given at least $340,126 plus benefits as a financial package after his retirement in December 2009.


He didn't work a single day or offer a single service in 2010 while earning the second top salary at PRHC, just behind current CEO Ken Tremblay.

'The compensations with Paul were in line with similar arrangements with other CEOs and other public hospitals which include support to the executive following the employment period,' board chairwomen Barb Cameron said. 'It is important that we are able to make transitions between leaders smoothly and these kinds of arrangements with the executive allow us to do that.'

Darby retired before a whirlwind of controversy hit the hospital last year including a scathing peer-review report blaming hospital top brass for a 'culture of entitlement' leading to spiraling, cumulative debt.


When Darby left, the hospital faced a growing deficit of just under $25 million.

He was paid $364,275 in 2009, $310,983 in 2008 and $269,419 in 2007.

At least his severance package was less than one-sixth of the deficit.
Not Sorry for Not Even Revealing One's Salary

Here is a local Rhode Island story reported by WPRI:

The nonprofit group that runs three Rhode Island Hospitals including Women & Infants won’t say whether its new chief executive will receive a seven-figure pay package that matches his predecessor’s.

Care New England tapped Cambridge Health Alliance CEO Dennis Keefe as its new president and CEO this week. He will succeed John Hynes, who is retiring, in August.

Care New England spokeswoman May Kernan said the organization would not release details about Keefe’s compensation. 'Other than complying with public reporting requirements as part of the federal [IRS] 990 forms, we do not disclose personal salary information,' she told WPRI.com in an email.

Hynes’ compensation totaled $1.5 million in 2008-09, up from $873,332 in 2007-08, tax records show.

Note that the hired executives of big for-profit corporations also are increasingly uncomfortable about public discussion of their compensation (see this post).
Where All CEOs Are Above Average

The rationales presented for such apparently exceptional treatment given non-profit hospital CEOs (and other hired health care managers) are those we have heard before.

The most prominent rationale for exceptional treatment of an individual CEO is that he (or rarely she) was such an exceptional leader. This would be more believable if it was not used so often, suggesting that those who defend these leaders, often including the boards of trustees who are supposed to supervise them, believe all hospital CEOs, like the mythical children of Lake Woebegone, are above average.

For example, the InForum article provided this explanation of Dr Gilbertson's compensation:

The only comment Sanford provided The Forum was a statement about Gilbertson’s contributions to MeritCare over his long tenure.

'Dr. Gilbertson’s gift to this region is invaluable – 30 years in medicine and 17 years as President/CEO of MeritCare only glance the surface,' said Andrew Richberg, a Sanford executive vice president. 'His vision for health care integration, medical knowledge and dedication to patients made him a pillar in our industry.'

Gilbertson’s legacy, Richberg added, is 'strong, safe and sustainable health care for all people, in their hometowns, all across the region.'

While the article did not suggest Dr Gilbertson's leadership was poor, it is hard to believe that he alone was responsible for "strong, safe and sustainable health care for all people ... all across the region." I am sure there are many other health care professionals in North Dakota who have worked for many years, and who have a strong vision, good medical knowledge, and dedication to patients.  I am sure almost none got $1 million severance packages.  If health care in North Dakota is really that good, is that not because of a lot of hard work by a lot of health care professionals?

The rationale of exceptional treatment for exceptional individuals would also be more believable if it was not used to defend CEOs whose organization performed poorly under their leadership. For example, in the Peterborough Examiner:

'I would like to acknowledge that these are big salaries, but they are big positions in a large hospital involving large responsibilities and requiring unique skills,' [hospital board of trustees chairwoman] Cameron said,....

Would not having the large responsibility for a large deficit argue against a large severance package?

The Market Made Us Do It

Despite substantial evidence and strong arguments (see here) that health care cannot approach being an ideal free market, another favorite rationale for CEO exceptionalism is that the market made us do it. For example, per the AJC:

The number of people who can manage these facilities is limited and recruitment is competitive, [Georgia Hospital Association President Joseph] Parker said.

Qualified leaders will gravitate to other fields over time if compensation for nonprofit CEOs is decreased, [executive search consulting company Mercer Inc partner Jose] Pagoaga said. The 'substandard leadership' that replaces them will degrade the quality of medical care for the community.

There’s debate on the issue.

It’s hard to believe that people who choose the field of charitable medical care would leave because they make only $800,000 a year instead of $1.5 million, said Mark Rukavina, executive director of the Access Project, a Boston patient advocacy organization.

But Pagoaga said nonprofit hospitals cannot count on their charitable duty to attract and retain the best administrators.

'Yes, it’s a social mission, but this is not the priesthood and these people have not taken a vow of poverty,' he said. 'You can’t discount the views of people that look at this as an altruistic mission and think that pay should therefore be limited. All I’m saying is there is an entirely different point of view based on free-market principles.'

In the real world, of course, poverty would hardly be defined as an income less than $1 million a year. Mr Pagoaga never explicated the point of view based on "free-market principles," but I wonder if it can be summarized as "greed is good?"  It would be interesting to see how Mr Pagoaga could explain how health care is like unto an ideal free market.  

Non-Profit Organizations are Not Very Different from For-Profit

Perhaps the most intriguing argument was found in the AJC article:

Pay in excess of $1 million a year may seem high for an organization subsidized by taxpayers, but hospital executives and industry representatives said the public should think of these hospitals not as charities, but as complex, billion-dollar organizations.

Georgia hospitals report to 27 state and federal agencies and engage in multimillion-dollar building projects. The larger hospital systems have billions in revenue and are among the largest employers in their communities. Many also operate for-profit subsidiaries.

'You can’t lose sight of the fact that it’s not an ice cream shop on the side of the street,' said Joseph Parker, president of the Georgia Hospital Association.

Note that currently US non-profit organizations do not have to report much data on their for-profit subsidiaries.  The above argument suggests they deserve considerably more scrutiny.
Of course, that last explanation begs the question of why the compensation of for-profit hired executives should be even higher, with CEO compensation often well more than two orders of magnitude, that is, hundreds of times higher than that of the lowest paid also hired employees (see this post).

Summary

I submit that non-profit hospitals and hospital systems do have a "social mission," which ought to be upheld by their leadership. Despite the rationales supplied above, the leaders ought to be accountable, which may sometimes mean having to say they are sorry.

As I have repeated endlessly,... health care organizations need leaders that uphold the core values of health care, and focus on and are accountable for the mission, not on secondary responsibilities that conflict with these values and their mission, and not on self-enrichment. Leaders ought to be rewarded reasonably, but not lavishly, for doing what ultimately improves patient care, or when applicable, good education and good research. On the other hand, those who authorize, direct and implement bad behavior ought to suffer negative consequences sufficient to deter future bad behavior.

What Is to Be Done?

Based on our ever enlarging file of cases on compensation of the top hired managers of non-profit health care organizations, let me make some concrete suggestions, based on my humble opinion.

A step forward would be to make the finances and compensation arrangements of health care non-profit organizations at least as transparent as those of large public for-profit organizations. So my big idea is:

- Non-profit health care organizations above a reasonable threshold size should provide prompt, public, annual reports analogous and very similar to the reports required by the US Securities and Exchange Commission of public, for-profit companies.

These reports should include, at a minimum, a summary of financial and operational status, an audited financial report, an explanation and accounting for any for-profit subsidiaries and any interlocking non-profit organizations, the compensation given to the CEO and some minimum number of the top-paid officers and employees, a detailed explanation and rationale for the pay of these individuals, and a listing of other affiliations and all conflicts of interest affecting them.

If need to supply such information causes non-profit health care organizations' hired executives and boards of trustees some cognitive dissonance, that would be a good thing. 

"Living High Life on Money to Treat the Poor"

Here is another story that has developed over the last week about questionable goings on at a not-for-profit health care organization.  The organization in question this time was the not-for-profit, but state government supported Medicaid managed care organization/ health insurer for the Louisville, Kentucky region.  The details came from a Louisville (Kentucky) Courier-Journal article about a state auditor's report on the Passport Health Plan:

The organization providing Medicaid services in Jefferson and surrounding counties has spent lavishly on such things as travel, meals, salaries, bonuses and lobbying in recent years, the state auditor’s office said in a report released Tuesday.

The scathing report, which Gov. Steve Beshear described as 'disheartening,' said two Passport Health Plan officials — Executive Vice President Shannon Turner and Associate Vice President Nici Gaines — were paid well, ate well and traveled extensively.

'Lodgings were often luxury spas and resorts,' the report said. 'The executives used limousine services and dined at expensive restaurants. While these types of expenditures may be routine for many private, for-profit companies, they should not be typical in nonprofit, health care organizations.'

The report also said Passport made extraordinary efforts to burnish its public image and gain political support by spending $1 million since 2007 on lobbying and public relations, as well as $423,000 in donations and sponsorships.

Many of the donations had no connection with health care, the report said — including $600 to sponsor a reception for the Senate Republican majority in 2009, $10,000 to sponsor an 'inflatable character' for the Kentucky Derby Festival's Pegasus Parade, and contributions to the Boy Scouts, Kentucky Opera, Volunteers of America and others.

Here are some more specifics about amounts spent:

Travel: Passport spent $106,722 on more than 36 trips including trips to conferences at resorts in New Orleans, Key West, Las Vegas, Seattle, Philadelphia, Tucson, Washington and Coeur d'Alene, Idaho.
Meals: Spent $72,994 on 753 meals for groups large and small. These were mostly at Louisville restaurants but included tabs at some famous restaurants outside Kentucky, such as Emeril's and Commander's Palace in New Orleans.
Limo services: Five uses of limos totaling $3,996.
Lobbying and public relations: Spent $1 million.
Donations and sponsorships: Spent $423,000, some with no connection to health care, including $10,000 to be an “Inflatable Character Sponsor” for the Kentucky Derby Festival.
Gifts: Spent $9,311 for 95 gifts, which included flowers and Christmas gifts.
Salaries: Paid salary and bonuses of $303,750 to Executive Vice President Shannon Turner and $156, 000 to Associate Vice President Nici Gaines in most recent year.

Here are more specifics about conflicts of interest:

Conflicts of interest: Both Turner and Gaines received additional compensation in contracts with subcontractor they were overseeing, AmeriHealth Mercy. Also, Larry Cook, Passport's chairman and CEO, had divided loyalties because he serves as an executive vice president of U of L. He also was reimbursed $1,717 by AmeriHealth for expenses for a trip to Ireland in 2007.
Grants: Many grants were made by Passport to groups with ties to staff and/or board members

The organization also was charged with distributing additional funds to area health providers based on their initial investment in the not-for-profit managed care organization, but not on the amount of care they were providing to Medicaid patients:

[State Senator Tim] Shaughnessy was particularly concerned about distributions of $10 million in excess funds in late 2008 and again in and 2009 to the large Jefferson County health-care providers that formed Passport.

These distributions were reported to the Kentucky Department of Insurance as grants to cover indigent care costs incurred by Passport's provider partners — University Medical Center, University Physician Associates, Norton Healthcare, Jewish Hospital and St. Mary's Healthcare, and the Louisville/Jefferson County Primary Care Association.

But the auditor’s report said the money was distributed based on the percentage of the providers' initial investments to create Passport — not the amount of indigent care they provided. And the report said this money was placed in the general funds of these providers 'rather than specifically set aside for uncompensated indigent care.'

Finally, it appears that Passport tried to block disclosure of important information, including the compensation of its executives, even though it is a not-for-profit organization entirely funded by the government:

Early this year The Courier-Journal filed a request under the state open records law seeking Passport records on compensation of its executives and minutes of its board meetings. But Passport refused to release them, claiming that the law did not apply.

The attorney general's office disagreed, saying that Passport is 100 percent publicly funded and must release the records. But Passport again refused and took the matter to Jefferson Circuit Court, where it is pending.

So again we have the same tiresome features of leaders who apparently regard their organization as their own personal sandbox: lavish compensation, given the context, luxuries supplied the leadership out of organizational funds, conflicts of interest that apparently increased further the leaders' personal gains, and attempts to keep the whole thing secret. As a Lexington (Kentucky) Herald-Leader editorial ("Living High Life on Money to Treat the Poor") noted, given the mission of the organization, this sort of sleaze is particularly unfortunate:

In one way, though, Passport's profligacy deserves special condemnation. Every dollar Passport executives spent on their own pleasurable pursuits, on lobbying to insure tax money kept flowing their way, on buying goodwill in the Louisville area or on any other unnecessary expense was a dollar taken away from providing Medicaid services to the most vulnerable, needy members of society.

This case resembles one we discussed previously, that of the non-profit community health agency in Florida whose leaders again seemed to regard their job as an opportunity for personal enrichment.  It seems that even leaders of non-profit organizations whose mission is to help the needy may seem to put their own needs before those of their disadvantaged constituents.  Of course, given they may have seen leaders of not-for-profit universities and hospital systems making millions, and leaders of for-profit pharmaceutical, device, and especially managed care organizations/ health insurers making tens of millions, and conclude that their six-figure salaries and occasional luxuries were barely adequate compensation.

As we have noted before, the "executives take all" mentality of an era economically dominated by financiers as aristocrats seems to have infected health care.  Somehow we have to restore the idea that executives and managers  like doctors and nurses, should regard their work as calling meant to put the needs of patients and public health first, rather than a quick way to get rich. 

A University President on Commission

The Miami Herald reported on the latest thing in executive compensation for leaders of academia (and academic medicine):

Florida State University's new president will have a larger salary than his predecessor, T.K. Wetherell, and stands to make even more in bonuses as a reward for big-time fundraising.

FSU trustees chairman Jim Smith confirmed Monday that Eric Barron has signed a contract that includes a base salary of $395,000 a year in state and private dollars, plus the chance to earn annual bonuses of $100,000 for every $100 million in private donations raised. He'll also get free housing and a car, Smith said, as well as a retention bonus of $200,000 after a few years.

Housing and car allowances have become standard fare for university president contracts, and in recent years Florida's university presidents have ranked among the top in the country for salary and compensation packages. But the bonus provision in Barron's five-year contract is a signal that the trustees want to see FSU's $447-million endowment grow by $1 billion over the next five years.

'We said $1 billion in five years, and we're serious about that,' Smith said Monday. FSU's trustees gave him the authority to negotiate with Barron, 58, and sign a contract.

Note that Florida State University is the parent institution for the Florida State University College of Medicine.

We have all heard jokes that university presidents now need to spend more time fund raising than doing anything else. Also, we have all heard the phase "no margin, no mission" too many times. However, in this case, the search for margin seems to have completely trumped the mission. As the article implied, I have not previously heard of a university president who gets bonuses only according to how much money he or she raises. I also have not previously heard of such bonuses being based simply on a percentage of the money raised. Thus effectively, the new president is being paid on commission, the commissions being based purely on fund-raising.

The problems are obvious.  First, structuring a bonus so that it is only a function of fund-raising raises fund-raising above upholding the university's mission.  Yet the board of the university has a duty of obedience, which  "requires board members to be faithful to the organization's mission. They are not permitted to act in a way that is inconsistent with the central goals of the organization."  Making the university president's bonus solely dependent on the dollar amount of funds raised would seem to violate that duty.

Second, structuring a bonus so that it is only a function of fund-raising suggests that where or how the funds are raised is no longer important.  Fund-raising done wrong can lead to conflicts of interest, obligations to unsavory people, or other ethical or legal issues.  Yet the proposed bonus would apparently be paid according to the amount paid, no matter what.

Perhaps in this era of "greed is good," such a brutal reminder that academics are now expected to care more about revenue that teaching and research should not be a surprise.  But if the only incentive the university president has is fund-raising, what sort of academic institution do we expect will result?